August 14, 2007

Costing the Workforce

I've just begun working as a contract employee on a short term project.

The firm i'm working for is paying an agency for my services and selling them to their client. In effect there are four touches [pimp fees] on my salary before it reaches the consumer. Here's how i figure it. Let's say i'm being paid $10/hour. The agency sells me @ 80% and the firm resells me to their client for another 80%. The client too has to make a nickel on my good work and they tack on another 80%. This gets passed onto the retailer who [before discounts] posts a MSRP that includes another 80% mark-up. The poor joe on the street ends up paying about $105 for my $10 worth of work. Suffice it to say that i'm being paid more than $10/hour and the work that i am currently doing is menial requiring little intellectual capital.

The client corporation in this particular case is a major pharmaceutical manufacturer, however this scenario is playing out across all sectors. The end result is reminiscent of the Pentagon's custom of buying $500 hammers. While the military is exercising more cost effective strategies corporate America has implemented the scheme on a wholesale scale. Workers laid off on Friday are hired back on Monday as “contractors” without benefits. The enterprise’s balance sheet is improved because they no longer have employees. The employment agency’s P+L is improved due to the influx of leased [sic] workers. Compared to the “old” model, the worker loses out.

When there is only one middleman in the pipeline the end market cost remains the same, but the out-of-pocket cost structure to the employee changes for health insurance, vacation allowance, retirement funds et al. In my case there is a 10 fold mark-up and each pimp benefits. Money is made on the cost of money, but the real value to anyone -- especially the root employee and the final end user -- is questionable.

Don't get me wrong. I am grateful for the job i’ve got and the opportunity to earn some money. But the system is broken and it won't be fixed unless dialogue is encouraged and issues are allowed to be discussed.